Flipping
- Thread starter qaz
- Start date
It's not stamp duty that is the real cost - it's Capital Gains Tax.
Give half your profit to the government
Say you buy a property for $200K at 95% LVR, that is cashflow neutral (rental covers loan & all maintenance costs) hold for 6 months, do no improvements & then sell for $250K (thats 50% capital growth per annum, or 25% over the six month period).
Wow! $50K profit....welll not actually.
Based on some estimated figures...
Purchase
Property cost: $200,000
Property stamp duty: $10,000
Loan costs (set-up, fees, stamp duty): $2,000
Legals, LMI and other costs: $2,000
TOTAL COST: $214,000
Sale
Property sale: $250,000
Sales costs (agent inc. all marketing at 3%): $7,500
Legal, loan payout, etc costs: $1,000
GROSS SALE RETURN: $241,500
Profit
Gross Return: $241,500
Total Cost: $214,000
GROSS PROFIT: $27,500
Capital Gains Tax (on highest tax bracket - 48%): $13,200
NET PROFIT: $14,300
That's not a great deal of profit when you consider the circumstances
And it's during a time of 50% annual growth in the specific real estate market!!!!
However doing improvements to the property and changes to the nature of the property can make this strategy work very effectively.
And it works best where the real estate market is booming
Of course it works a treat in countries with no CG Tax or Stamp Duty (such as NZ).
And, as always, please prove me wrong!
Cheers,
Aceyducey
I agree!
But with experience & knowledge flipping can be an excellent income stream. But!!!
Rule 1
You must be spot on with your predictions. In cg
rule 2
You must always have a way out just incase you can not flip.
But if rule 1 is applied & found to be right ypu never need rule two!
Some of us have done very well in this market. We tend 2 buy 3-4 at a time so the $20k profit is x 4. Not bad money for signing forms over 6-12 mths. But I reko land,,, as a less risk,,, not units.
Land has given some of us 100% gain in 12 mths. alot more than $20k
The more gain in % the less risks overall!!!
If you wish to keep the purchase after settlement ,,,,that may be possi as the growth allows you too.
Flipping is my fav,,, It is easy & fun.
But you must follow rules!!!!!
ocean
But with experience & knowledge flipping can be an excellent income stream. But!!!
Rule 1
You must be spot on with your predictions. In cg
rule 2
You must always have a way out just incase you can not flip.
But if rule 1 is applied & found to be right ypu never need rule two!
Some of us have done very well in this market. We tend 2 buy 3-4 at a time so the $20k profit is x 4. Not bad money for signing forms over 6-12 mths. But I reko land,,, as a less risk,,, not units.
Land has given some of us 100% gain in 12 mths. alot more than $20k
The more gain in % the less risks overall!!!
If you wish to keep the purchase after settlement ,,,,that may be possi as the growth allows you too.
Flipping is my fav,,, It is easy & fun.
But you must follow rules!!!!!
ocean
Aceyducey, you did not include interest repayments in your breakdown of costs did you ?
There is infact no costs when you flip, the reason is that when you flip a property you do not own it, you have negociated a deal and recieve a fee for it. the correct tern for what you are talking about is onselling.
I have always held the view that you only purchase properties that you can afford to settle. If the opportunity comes up to onsell at a profit that is a bonus.
regards
Nigel Kibel
I have always held the view that you only purchase properties that you can afford to settle. If the opportunity comes up to onsell at a profit that is a bonus.
regards
Nigel Kibel
Nigel,
I've always defined flips differently - primarily because if you flip in the way you described you are principally acting as a buyers' agent in my view....and therefore require a RE Agent's license to do so legally.
If you are spotting or selling property you DO NOT OWN a Real Estate license is mandatory.
Cheers,
Aceyducey
whether that is the case or not, the term is onselling not flipping.
As mentioned flipping is where you do not own the property, whether you need to be licenced has nothing to do with the meaning
regards
Nigel
As mentioned flipping is where you do not own the property, whether you need to be licenced has nothing to do with the meaning
regards
Nigel
Flipping defined...
Hi...
I just love it when we hit flipping every few months...
Flipping is a very broad US term.
But there are essentailly 3 types of flippers...
1. finders (eg. spotters, buyer agents, etc....)
2. on-sellers prior to settlement (eg. sell option, contemporanous settlement, etc)
3. settle and on-sell
But search history for prior discussions.
Ross
Ross
Hi...
I just love it when we hit flipping every few months...
Flipping is a very broad US term.
But there are essentailly 3 types of flippers...
1. finders (eg. spotters, buyer agents, etc....)
2. on-sellers prior to settlement (eg. sell option, contemporanous settlement, etc)
3. settle and on-sell
But search history for prior discussions.
Ross
Ross
Nigel,
I've done a bit of a look for definitions of flipping on the web.
The clearest I've found is as follows:
Land or property flipping happens when property is purchased and quickly resold for a large profit, after little or no meaningful rehabilitation.
You may also find these useful references:
http://www.cashflowproperties.com/flippingproperties.htm
http://www.investinginland.com/is_flipping_legal.htm
The FAQ in this forum refers to it as:
Flip: (where you find a property at well below market value and either pass it on to an investor for a finder's fee or higher price)
- encompassing both our definitions
Can you direct me to your definition thanks so we're all clear in future threads what the terms mean.
Cheers,
Aceyducey
I've done a bit of a look for definitions of flipping on the web.
The clearest I've found is as follows:
Land or property flipping happens when property is purchased and quickly resold for a large profit, after little or no meaningful rehabilitation.
You may also find these useful references:
http://www.cashflowproperties.com/flippingproperties.htm
http://www.investinginland.com/is_flipping_legal.htm
The FAQ in this forum refers to it as:
Flip: (where you find a property at well below market value and either pass it on to an investor for a finder's fee or higher price)
- encompassing both our definitions
Can you direct me to your definition thanks so we're all clear in future threads what the terms mean.
Cheers,
Aceyducey
Correct me if I am wrong but i think a possible way to reduce the capital gains tax is to use a company entity to do it. This will reduce the tax to 30%.
However there is the problem where you need to get a developer's license if you are flipping more than 6 properties per year (maybe this applies only in QLD?)
Crespo
However there is the problem where you need to get a developer's license if you are flipping more than 6 properties per year (maybe this applies only in QLD?)
Crespo
If you sell a property and make a gain, then I think you are correct- you will pay tax at the 30% rate, as against the almost 50% tax rate if you are in the top bracket.
However, I think that you would miss out on the 50% allowance which you would have had as an individual if you had held the property more than 12 months.
So, as a hypothetical-
Company- Buy something for $40K, sell two years later for $80K- pay 30% tax on $40K = $12K
Individual, less than twelve months held. Buy for $40K, sell 9 months later for $80K, pay almost 50% on $40K- $20K.
Individual, more than twelve months held. Buy for $40K, sell 12 months later for $80K, pay almost 25% on $40K- $10K.
(not forgetting setting up a company, if you do have one).
So a company can be worth it, but you have to get good advice along the way
However, I think that you would miss out on the 50% allowance which you would have had as an individual if you had held the property more than 12 months.
So, as a hypothetical-
Company- Buy something for $40K, sell two years later for $80K- pay 30% tax on $40K = $12K
Individual, less than twelve months held. Buy for $40K, sell 9 months later for $80K, pay almost 50% on $40K- $20K.
Individual, more than twelve months held. Buy for $40K, sell 12 months later for $80K, pay almost 25% on $40K- $10K.
(not forgetting setting up a company, if you do have one).
So a company can be worth it, but you have to get good advice along the way
Flips...
I have just flipped my first property with a gross return of $10,000 but i am still a little uncertain what terminology I could use for Rule 2....can you suggest some.....I am being mentored by American's at present and sometimes things get lost in the translation....
Thanks
PeterS
I have just flipped my first property with a gross return of $10,000 but i am still a little uncertain what terminology I could use for Rule 2....can you suggest some.....I am being mentored by American's at present and sometimes things get lost in the translation....
Thanks
PeterS
ocean view said:
If you are prepared to make the house your place of residence for 12 months you avoid capital gains tax.
I was told by a fincial advisor that this was the case. Are you sure?
Aceyducey said:
I think Pompey is correct,
Steps
- Buy house personally in your and/or spouses name.
- Live in it for 12 months as PPOR
- Sell it
- Pay no CGT
Long ago I think Ross Sondergeld posed the idea that your PPOR could be considered as your Big CGT free $$$$ maker.
Sorry I wasn't entirely clear.
Always Learning & Pompey, it depends on how long you've owned the property versus how long you've lived in it.
You can't simply move in to an IP you already own for 12 months & voila! pay no tax.
And you cannot have more than one PPOR at a time. SO if you buy a new property & declare it your PPOR, you begin to acrue a CGT liability on your previous PPOR
If you've owned an IP for a number of years, move in for 12 months & then sell it, you still have to pay CGT on the basis of the number of years you've owned it less the time it was your PPOR.
Refer: http://www.ato.gov.au/large/content.asp?doc=/content/31570.htm&page=10#P1949_162165
Specific points:
Cheers,
Aceyducey
Always Learning & Pompey, it depends on how long you've owned the property versus how long you've lived in it.
You can't simply move in to an IP you already own for 12 months & voila! pay no tax.
And you cannot have more than one PPOR at a time. SO if you buy a new property & declare it your PPOR, you begin to acrue a CGT liability on your previous PPOR
If you've owned an IP for a number of years, move in for 12 months & then sell it, you still have to pay CGT on the basis of the number of years you've owned it less the time it was your PPOR.
Refer: http://www.ato.gov.au/large/content.asp?doc=/content/31570.htm&page=10#P1949_162165
Specific points:
Cheers,
Aceyducey
Aceyducey said:
Thanks mate,
Its good you are on the look out. My apologies.
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